There has been a sharp jump in the number of companies that have been forced off the AIM junior stock market due to insolvency, shows research by UHY Hacker Young, the national accountancy group. 16 AIM companies were forced off the AIM market due to insolvency or financial stress in 2018, up from just nine in 2017.
UHY Hacker Young explains that increased nervousness amongst investors in Q4 2018 has made it harder for loss making AIM companies to raise additional finance by selling shares. Loss making AIM companies often have secondary fundraisings on AIM, after their IPO, in order to fund themselves until they are cash generative.
The AIM market fell 23% in the last quarter of 2018 as the global sell-off in stock markets caused investors to mark down early stage companies more aggressively. That sharp fall has damaged the confidence of investors being asked to fund those AIM businesses that still have both a rapid cash burn and that have made little progress towards break-even.
Says Laurence Sacker, Managing Partner at UHY Hacker Young: “Investors are now more nervous of providing extra funding to keep some of the financially weaker AIM companies going – it’s an inevitable consequence of stock market volatility.”
“A good AIM company will be able to raise further funds in all but the toughest of markets but a more marginal company will find it much harder to issue shares at the moment. Investors are trying to reduce their exposure to smaller riskier companies at the moment.”
“In an overall weak economy banks and other lenders are also looking more closely at whether they want poorly performing borrowers drawing down further tranches of loans, and that is adding to the pain of some AIM companies.”